 Your
Credit Picture - Maintaining a Good Credit Rating
By Marlene DarbyWhen did you last
check your credit bureau rating? Do you even know what your credit rating
is? Do you know what having a “good credit rating” means? A survey done by
MasterCard shows that most people (about 38%) believe that they have an
excellent credit rating. The survey further shows that 69% of Canadians have
not looked at their credit report, and 27% of those asked said they didn’t
know what a credit rating was!
A good credit rating is a valuable asset and can make it easier for you to
obtain additional credit when you need it. A good credit rating is your
passport to getting approved for a mortgage, credit cards, lines of credit,
electronics and anywhere else you see the words “OAC”. “OAC” means “on
approved credit”. Nowadays you can buy almost anything, anywhere in the
world on “credit”. So you may want to ensure that you have a good clean
credit rating.
If you have never checked your credit history, your file could contain some
surprises. There could be inaccurate credit information recorded and even
debts you are not aware of.
How It Works - Credit ratings are set by special agencies such
as Equifax and TransUnion. Your personal rating is based on a number of
factors, including your repayment history, the different types of credit you
use, including other lines of credit and credit cards, how much credit you
have available, and how often or recently you have applied for credit. If
you have had a judgment or collection against you, this is reported to the
two credit bureaus and it is noted on your credit bureau report. If you have
paid the judgment and/or collection you should obtain an original copy of
the legal document from the collection agency or the person who got the
judgment against you and send it to Equifax and/or Trans Union. It will
reflect the fact that you have paid your debt, but a record of it will still
show up on your credit bureau report.
If you have declared bankruptcy or arranged for an Orderly Payment of Debts
(OPD) these will also show up on your credit bureau report so anyone
checking it to grant you credit will be aware of it. It would be useful once
you get a discharge from bankruptcy for you to obtain an original copy of
the document discharging you from bankruptcy and send it to the two credit
bureaus. They will add that to your report, but it will not be removed from
your report for 6 years. The same process applies for an OPD.
Once you have been discharged from bankruptcy or an OPD, you should also try
and re-establish your credit. This is easily accomplished. Simply request a
FIXED credit card from your bank with a low limit (say $250.00) and then
start using it and paying it back. This will show that you are trying to
re-establish your credit and your rating could be improved.
Check Your Rating - You should check your credit bureau report
annually. It is quite simple. You check your credit report with Equifax or
TransUnion by calling toll free: Equifax at 1-800-465-7166 and TransUnion at
1-800-663-9980, or you can log on to their web sites:
www.equifax.ca or
www.tuc.ca If the
information is not accurate or something is missing, there are steps you can
take to have it corrected.
Missing a payment on the “due date” on your credit card statement(s), or if
you are late, may cost you more than extra interest charges. These late
payments are reported to one of Canada’s two credit bureaus (or both).
Equifax and TransUnion keep track of what you owe and if you are making
payments on time. If you are late paying your bills, even by one or two
days, this will show up as an “R2”. Anything other than an R1 means that you
have been delinquent in your debt payments and goes against your credit
rating. Any late payments more than 3 times will show up as an “R9” which is
the worst rating and it would send up “bells and whistles” to anyone looking
at your report. If you know you are not going to be able to make your
payment on time or not a all, call the credit company and tell them your
circumstances. They will work things out with you and may not report it as
being a late payment.
Build A Better Credit Picture - Repairing a poor credit rating
comes down to clearing up any outstanding payments you owe and making sure
you pay on time in the future. Establishing new credit and keeping up with
your payments can also help. For example, using your banks Personal Line of
Credit and making the required payments can help improve your credit rating.
However, having too many credit checks done when you are applying for more
credit can negatively affect your rating. If you know that you are going to
be applying for credit, you should not use your credit cards for about 1-2
months. The more credit checks that are made tells the prospective credit
grantor that you are “shopping around”. This is especially a concern if you
are looking to get a mortgage or refinancing your mortgage. This “shopping
around” also lowers your “beacon score”, which could be a problem.
When you have a good credit rating, you will want to preserve it. And that
means using credit wisely and meeting your debt obligations on time. It also
means you can bargain for the “best rate” from a lender; in the case of
obtaining a first mortgage or refinancing your mortgage, that could be very
useful.
Marlene Darby is a Mortgage Broker & Paralegal providing assistance in
both mortgage transactions & paralegal work. Marlene may be contacted at
403.256.1936 or email madarby@telus.net
for further information. |
